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Does a new phase in China’s post-Deng era of corruption mean lights out for the Communist Party?

As China enters the fifth year of an anti-corruption crackdown begun in late 2012, Minxin Pei’s China’s Crony Capitalism: The Dynamics of Regime Decay provides a timely and insightful analysis of how the worsening of corruption since the advent of post-Mao economic reforms a generation ago has shaped China’s political economy. Pei’s new book builds on his previous work, China’s Trapped Transition, in which he argued that the failure to combine political reforms with marketizing economic reforms left China “trapped” in a degenerate form of predatory authoritarianism in which the political elite usurp their delegated authority to engage in plunder and looting.

China’s Crony Capitalism: The Dynamics of Regime Decay

Minxin PeiHarvard University Press, 2016, 365 pp., $35

Pei’s 2006 book was criticized for presenting a pessimistic “one-sided” reading of the data, and overstating the extent to which corruption was eating away at the vitals of the Chinese economy and undermining its political institutions. Pei’s new book is more measured in tone, but it is not less pessimistic. He maintains his earlier negative view of the regime’s long-term prospects.

In 2006, Pei observed that economic reform had enabled the Party to arrest the debilitating effects of the Maoist system by creating a “market Leninism” that prevented regime collapse and a decent into oligarchic kleptocracy (a political system best defined as rule by thieves and the use of political power to facilitate theft according to rank). As a result, Pei argues, the Communist Party was not replaced by a cabal of buccaneering robber barons, as happened in the former Soviet Union. Instead, partial economic reform, combined with the Party’s retained monopoly on political power, enabled the Party to maintain a predatory but stable authoritarianism, at least for a while. The system leaked with corruption, but not enough to destabilize it.

Pei now argues that rather than “trapping” China in a durable authoritarianism, partial marketization has led to the emergence of a form of “rapacious crony capitalism” based on “collusive corruption.” In the earlier post-Deng era we saw individualized corruption; now we see a far more institutionalized and pervasive form of corruption. State officials and Party cadres, he asserts, have forged collusive networks within the political party-state; between the party-state and the emerging “private” (or perhaps more accurately, from Pei’s perspective, “non-state”) business community; among the managers of China’s still-large state sectors; between officials tasked with regulating the economy; and among officials, cadres, and criminals. The result, in Pei’s view, is a corrupted political economy based on rents, rent-scraping, and the systematic theft of state property and financial assets. It is a system that enables the politically powerful and connected to enrich themselves at considerable cost to the economy as a whole—far more than was the case with individualized plundering. It is not, in his view, sustainable.

In making his case that Deng’s ad hoc, incrementalist approach to economic reform led to collusive corruption and crony capitalism, Pei begins with an analysis of the impact of the Dengist reforms on property rights using a database derived from 260 high-level corruption cases. From the data Pei distills out the forms, structures, and consequences of what he considers China’s crony capitalism. Pei’s data include extensive documentation of fifty cases involving the buying and selling of public offices by officials; fifty cases involving “insider-outsider” collusion between officials and private businesspersons; fifty cases involving “collusive corruption” among managers of state-owned enterprises; fifty cases involving collusion between law enforcement officials and organized crime gangs; thirty cases involving collusion between multiple judges and court officials; and thirty cases involving corruption among multiple regulatory officials. (Data on all 260 cases are provided in six appendices.)

In many respects, the strength of China’s Crony Capitalism lies in Pei’s use of these case-based data. They enable him to analyze in detail how corruption is conducted in contemporary China, who is involved, what are the stakes of the corruption game, and what are the risks to those involved in stealing from the state and scraping off rents. For those interested in rich qualitative descriptions of the major forms of corruption found in China, Pei’s work provides a far more systematic, detailed, and nuanced narrative than can be found in other analyses dependent on scattered, anecdotal descriptions drawn from far fewer but perhaps more “newsworthy” cases. Pei, moreover, weaves together exemplar cases in detail: those involving former Politburo Standing Committee member Zhou Yongkang; former Politburo members Chen Xitong, Chen Liangyu, and Bo Xilai; former Vice Chairs of the Central Military Commission General Guo Boxiong and General Xu Caihou; and former Director of the Central Committee’s General Office Ling Jihua. Pei thus unquestionably provides a highly readable and rigorous qualitative description of corruption in China.

Ironically, perhaps, the major shortcoming of China’s Crony Capitalism may also derive from his case-study approach. As suggested by the title, Pei seeks to present a dynamic model showing how the combination of partial reform and administrative decentralization created a system of incomplete property rights that was ripe for plunder, and how the opportunities for plunder have led to a shift from individualized looting to collusive corruption as the reform era progressed. At the same time, he also seeks to provide a cross-sectional analysis highlighting the variations in the form of corruption across China’s diverse regions with their varying levels of resource endowments, industrial structures, market access, and economic opportunities. To provide such a time series-cum-cross-sectional analysis, Pei tries to cover a considerable and impressive amount of time and space, with cases spanning 29 years from 1986 to 2015 in a wide spectrum of different localities.

Even though the breadth of Pei’s data is impressive, it is not clear that it is sufficient to allow him to undertake a dynamic analysis, particularly when the data are broken down into the six forms of corrupt activity that he posits. With just fifty examples of each form to span the 1990s and 2000s, Pei’s data points are perhaps simply too few to sustain a robust time series-cum-cross-sectional analysis, even one that is based not on complex econometrics, but rather a more direct “ocular shock” test methodology. This is not to deny the validity of Pei’s case-based analysis; the analysis of the six forms of corruption is unquestionably rich and insightful. Rather, the key methodological point here is that, while Pei’s data support a rigorous description of corruption, they may not underpin as robust an analysis of cross-sectional variation and dynamic change.

The lack of an effective dynamic analysis becomes a second weakness in Pei’s broader argument about corruption and regime decay. As in both his first book, From Reform to Revolution, and his second, Trapped Transition, Pei continues to believe that the Chinese Communist regime must either embrace major political reforms or decay to a point at which the regime can no longer thwart political change. It then must either succumb to a series of self-initiated partial reforms that lead to regime transformation or stubbornly resist reform until a revolutionary upsurge sweeps it onto the dustbin of history. In From Reform to Revolution Pei suggested that Deng had managed to avoid the “Tocqueville paradox” of half-hearted political reform by embracing economic reforms that forestalled the economic collapse of the Maoist economic model that might have resulted in its political demise. Economic reform, he argued in Trapped Transition, bought the CCP time by raising incomes enough that, when confronted with a potentially revolutionary challenge in 1989, the regime’s intact coercive power was sufficient to allow it to crush political threats from below while also buying off the elite to keep them loyal to the Party. The price, however, was to leave the system trapped in a dysfunctional form of market authoritarianism.

Now Pei discards the possibility of a dysfunctional market authoritarianism equilibrium. Collusive corruption, he writes: “produces a self-destructive dynamic” because “collusion begets collusion” in the precise manner that Gresham’s Law posits that bad money will drive out good money. According to Pei, dishonest officials and cadres will either progressively corrupt would-be honest officials and cadres or drive them out of office. The system will thus become ever more corrupt over time, with the result that crony capitalism and its collusive corruption will “almost certainly accelerate [China’s Leninist regime’s] demise.”

As the regime decays, he continues, elite disunity will worsen, leading to increasingly bitter “power struggles” from which a “strongman” is apt to arise. Such a strongman, a role that Pei sees Xi Jinping as now grabbing for, will not arrest regime decay but will instead increase elite resistance, fear, and infighting. That, in turn, will leave China’s decaying Leninist regime “even more brittle” and vulnerable to internal disintegration.

At the same time, according to Pei, crony capitalism will concentrate wealth in the hands of an increasingly small circle of privileged elites, exacerbate income inequality, and ultimately create political conditions in which some sort of seemingly small “spark,” akin to that which triggered the so-called Arab Spring in 2011, culminates in a “revolutionary” upsurge that an enfeebled regime cannot suppress, or which leads to the opportunistic defection of elites seeking to bend the revolutionary upsurge to their own political ends. Either way, in Pei’s view, crony capitalism has placed the current regime on its road to ruin.

As spelled out more precisely in his October 2016 Journal of Democracy essay, “Transition in China?”, Pei does not see the collapse of China’s Leninist regime as imminent. In his view, barring a strategic crisis brought on by, say, the sudden loss of the possibility of recovering Taiwan, the frustration of its territorial claims in the East and South China Seas, or a failed military confrontation with the United States, China’s crony capitalism is likely to survive for perhaps a decade or more. However, barring major new reforms, Pei asserts, the rot will continue to spread, not at a steady linear rate but at an episodic, non-linear, and hence unpredictable pace. Ultimately, he concludes, the CPP must either relinquish its monopoly on power or lose it in a fratricidal power struggle among its elites—or from a revolutionary surge from below.

But what might China look like during its decade-plus period of decay? Herein would lie the utility of a sufficiently supported dynamic model. Pei posits that crony capitalism will progressively decay into full-fledged kleptocracy over time. But how fast the decay might proceed and how long it will take for collusive corruption to transform crony capitalism into kleptocracy is left unclear. In key respects, it is difficult to see where Pei draws the line between kleptocracy and crony capitalism. Perhaps he sees no sharp line; perhaps it is merely a matter of degree. But he has given us no definitional tool wherein we might know.

There does, however, seem to be an important difference. Kleptocracy implies a system of rule premised on short-term plunder, one in which political elites and their allies seek to grab whatever they can get their hands on today and prepare to flee with their ill-gotten loot when the roof begins to fall in, as will surely happen once they have knocked down the key institutional pillars holding up the decaying political system. Crony capitalism, on the other hand, implies an elite with a longer shadow of the future, one that seeks to perpetuate its grip on power in part, perhaps in large part, because hanging on to power provides it with access to ongoing illicit revenues streams. Pei’s argument, however, suggests that collusive corruption inexorably drives crony capitalism toward kleptocracy and regime crisis. Crony capitalism therefore cannot provide a stable and durable equilibrium, but this assertion must fall back on the same unilinear assumptions about reform, regime change, and democracy that were criticized in his earlier work.

While Pei’s argument is not crudely deterministic, he does nevertheless give short shrift to the possibility that the degeneration of crony capitalism will not inexorably lead to regime change. There is, I suggest, an alternative to the descent from crony capitalism to kleptocracy: plutocracy.

As with kleptocracy, the difference between crony capitalism and plutocracy, which can be defined as rule by the rich and in the interest of the rich, is perhaps a matter of degree. But whereas Pei’s crony capitalism is based on system-destroying collusive corruption, a plutocracy is based on an institutionalized system of privilege that empowers the rich while leaving the mass of society disempowered. In such a system, the regime seeks to control the egoistic destructive impulse to get rich quick by means fair or foul and enforce a system of stable property rights and regularized rule, with the goal of perpetuating the domination of a coalition of political and economic elites. History is full of stable plutocracies; many lasted a very long time, partly because stable democracies generally devote sufficient resources to “bread and circus” social spending and thereby dampen and control mass discontent.

There is reason to think that China may already be moving toward a plutocracy and that Xi, like his successors, understands that the fight against corruption is vital to regime survival.

If there is one key lesson to be learned from the political behavior of Mao’s successors, it is perhaps that even though corruption may have penetrated into the senior ranks of the leadership, as a collective whole the leadership is grimly determined to hang on to power and that they are in fact prepared to continue to fight the debilitating effects of corruption and political decay. Deng, who had been a willing follower of Mao and an architect of the planned economic system in the 1950s, embraced market reforms in the late 1970s and then doubled down on the merger of capitalism and communism in the early 1990s because he saw economic reform as the only way to save socialism in China. Likewise, Deng, Hu Yaobang, Zhao Ziyang, Jiang Zemin, Hu Jintao, and now Xi Jinping have waged a protracted “war against corruption” for more than three and a half decades because, as has been often said, the struggle against corruption is a life-or-death fight. Without question, the intensity of that war has ebbed and flowed and has neither dramatically reduced corruption nor prevented individual members of senior ranks of the party-state leadership from succumbing to the “silver bullets” of collusive corruption. Nevertheless, the leadership has never thrown in the towel of defeat and let collusive corruption transform crony capitalism into unrestrained kleptocracy.

It is possible, therefore, that rather than a forlorn and doomed rearguard battle, Xi’s ongoing anti-corruption campaign could allow him to “muddle through” in the same sort of way that Deng and his lieutenants did in the turbulent days when communism was melting down. He could thereby “save” some sort of “socialism with Chinese characteristics” by curbing corruption while continuing to siphon off a share of China’s wealth into government programs that foster what former General Secretary Hu Jintao called a “harmonious society.” In such a system, the link between the established power elite and the emerging economic elite, or what former General Secretary Jiang Zemin called the “advanced economic elements” of Chinese society, would be shifted from one based on collusive corruption to one based on a broader institutional embeddedness of the economic elite.

Such an incremental broadening of the Party’s plutocratic coalition is possible because the institutions needed to create at least a façade of increased political participation by China’s economic elite already exist. China has a constitutionally based system of legislatures, including the nominally paramount National Peoples’ Congress (NPC), and a parallel system of formal, but not constitutionally based, political consultative conferences under the auspices of the Chinese Peoples’ Political Consultative Conference (CPPCC).

At present, neither is directly and competitively elected. Nor does either exercise decisive power. On the contrary, the NPC is often denigrated as a “rubber stamp” and the CPPCC mocked as a “worthless flowerpot.” Both are, however, large institutions. The NPC and CPPCC, for instance, each have in excess of 2,000 delegates. The provincial-level peoples’ congresses and consultative conferences have 20,000 delegates each. Lower-level peoples’ congresses and consultative conferences net hundreds of thousands of others into the regime’s now peripheral political institutions. Moreover, both the peoples’ congresses and consultative conferences already include members of China’s eight “democratic parties” and large numbers of “non-party” elites. The Party could, therefore, dilute its monopoly on power and replace it with a plutocratic “duopoly” without fundamentally changing the existing power structure. But this can work only if Xi’s ongoing anti-corruption campaign checks the most degenerative effects of collusive corruption on crony capitalism, which Pei believes is unlikely, and does not intensify intra-elite strife, which Pei’s model suggests is likely. Ultimately, Pei may be right that socialism with Chinese characteristics, and the CCP’s authoritarian grip on power, is doomed. But it is not out of the realm of possibility that Xi’s fight against corruption could forge a stronger and more enduring plutocracy.

Questions about the validity of Pei’s vision of the CCP’s long-term prospects such as those raised here do not constitute fundamental criticisms of China’s crony capitalism. The book is a major contribution to the literature on corruption and its political consequences. Pei clearly and insightfully spells out the centrality of “collusive corruption” as the defining characteristic of “crony capitalism” and documents the structures and modalities of corruption in contemporary China. As such, his assertion that regime survival is now threatened by corruption represents a much stronger case than those made by other proponents of the “coming collapse” thesis; hence the book is a “must read” not only for those interested in corruption but also those interested in the dynamics of regime decay and systemic transformation not just in China, but in other “modernizing” authoritarian systems.

Andrew Wedeman is professor of political science at Georgia State University and a fellow at the Kissinger Institute on China and the United States at the Woodrow Wilson Center for International Scholars.